🏠 What’s an Escrow Account — and Why Do You Need One?

Buying a home comes with a few new terms — and escrow account is one that confuses a lot of people. Let’s break it down in plain English.

💡 What Is an Escrow Account?

Think of your escrow account like a piggy bank managed by your lender.
Each month, when you make your mortgage payment, a portion of that payment goes into this account.

That money is used to pay:

🧾 Property taxes
🏥 Homeowners insurance
(And sometimes) Mortgage insurance

So instead of paying those big bills once or twice a year yourself, your lender collects a little each month and pays them for you when they’re due.

🏦 Why Are Escrow Accounts Required?

In most cases, lenders require an escrow account to protect both you and them.
If taxes or insurance aren’t paid on time, that could put the property (and the loan) at risk — so escrow helps make sure it’s all covered automatically.

Here’s the general rule:

If you put down less than 20%, your lender will likely require an escrow account.
If you put down 20% or more, you can often choose to waive escrow (depending on the state and loan type).

⚠️ Some states, like Washington, require escrow accounts for most loans with less than 20% down — no exceptions.

💰 How Much Goes Into Escrow?

When you close on your home, your lender usually collects a few months’ worth of property taxes and insurance up front to start your escrow account.

These funds are part of your closing costs and make sure there’s enough cushion to pay your first tax and insurance bills when they come due.

🧮 Example:
If your annual property taxes are $3,600 and homeowners insurance is $1,200 — that’s $4,800 per year, or $400 per month.
Your lender will add about $400 to your mortgage payment to cover those expenses.

📅 How It Works Each Month

You make your regular mortgage payment.
A portion goes to your loan (principal + interest).
The rest goes into your escrow account.
When taxes or insurance are due, your lender pays them directly.

✅ You don’t have to remember the due dates or worry about missing a payment.

🧠 Can You Waive Escrows?

Sometimes, yes — but it depends on:

How much you’re putting down 💵
Your credit profile 🧾
The type of loan you’re using (FHA, VA, conventional)
The state’s laws

If you qualify to waive escrow, you’ll pay your taxes and insurance on your own — but remember, that means saving for those bills yourself.

✍️ The Bottom Line

An escrow account helps simplify homeownership by spreading out big costs like taxes and insurance into small monthly chunks.

It’s one of those behind-the-scenes tools that keeps things running smoothly — and while it may seem confusing at first, it’s actually designed to make your life easier.

💬 Questions about your escrow account or if you can waive it?
I’m happy to help walk through your options and how it affects your monthly payment or closing costs.